June 2024
The FIRE movement, which stands for “financial independence, retire early”, is a programme of extreme savings and investments that allows people to retire far earlier than a traditional pension plan would permit.
This lifestyle and financial strategy is said to be particularly popular among Generation Z and young professionals, and is extensively referenced on social media platforms such as Instagram, TikTok, and YouTube.
The core FIRE premise is to achieve financial independence by saving and investing a substantial portion of your income – typically 50% to 70% – in order to stop working much earlier than the traditional retirement age of 60 or 65.
The recommended method is to live frugally, save aggressively, and invest smartly. Once you’ve built up a substantial financial cushion, you can pursue new passions and career paths without the pressure of having to earn a salary.
Sarah Nicholson, operations manager of JustMoney.co.za, a platform that helps South Africans make good money choices, says many young people are attracted to FIRE’s promise of freedom and flexibility.
An in-depth youth insights study by Flux Trends, which formulates business strategies, and Student Village, a youth marketing agency, found that among respondents, Generation Z members plan to retire, on average, at 52 years, while 27% want to retire at age 45 or younger.
Realistically, these retirement goals are unattainable for most South Africans.
“Youth unemployment is extremely high. Those fortunate enough to have a job often subsist from month to month. There’s very little money left in their budgets for saving, let alone building up a substantial investment fund,” Nicholson explains.
“Following the FIRE method is easier if you have a good education, a substantial salary, and no dependents.”
Nonetheless, the FIRE movement offers valuable lessons, she says. Many people question the traditional narrative of working in an office for decades and only then following their dreams.
“Even if you can’t retire in your 40s, you can use many of the FIRE ideas to design a better financial future for yourself and your family, giving you more lifestyle choices,” Nicholson says.
Here are some FIRE movement tips to help you take control of your money:
- Boost your financial literacy: Learn more about money matters to make informed decisions about spending, saving, and investing. Read books, follow financial blogs, listen to podcasts, and engage with the FIRE community on social media to keep learning and stay motivated.
- Create a detailed budget: Track your income and expenses meticulously. Understanding where your money goes is the first step in identifying where you can trim costs.
- Save and invest aggressively: Save and invest a significant portion of your income. Automate your savings to ensure consistency.
- Build an emergency fund: Ensure you have robust savings to cover unexpected bills. This safety net will prevent you from dipping into your investment portfolio prematurely.
- Live below your means: Adopt a frugal lifestyle. This might include buying second-hand items, rarely eating out, doing your own home repairs and car maintenance, and sharing accommodation.
- Maximise your income streams: Look for ways to boost your income through side hustles, freelancing, or skills training to obtain a higher-paying job.
- Invest wisely: Focus on low-cost, diversified investment options. Consider a balanced portfolio that aligns with your risk tolerance and long-term goals.
Read a JustMoney article on how much money you need to start investing.
- Minimise your debt: Be cautious about taking on debt, and pay off high-interest loans as quickly as possible.
- Take care of your assets: Assess your risks and research appropriate insurance. Digital nomads, for example, require cover for their laptops and other IT equipment so they’ll experience minimal work interruption if items are stolen or lost.
Read a JustMoney article on how to navigate risk in a changing world.
- Track and adjust: Review your financial plan regularly. Life circumstances and goals can change, so stay flexible and adapt.
- Plan for healthcare: Healthcare costs can be significant, especially if you retire early and lose employer-sponsored medical aid. Select a medical aid package and gap cover that suit your needs and budget.
“You may not be able to retire at 40, but a solid understanding of money matters will bring you closer to a lifestyle driven by choice rather than necessity,” says Nicholson.
“It’s worthwhile discussing your plans with a reputable financial adviser. Their professional training and experience in investment strategies, tax planning, and financial management can provide insights and advice you might not have considered.”
JustMoney.co.za is a trusted voice within the personal finance sector. The JustMoney platform offers articles, money management tools, and a wide range of financial products and services. More than 450,000 South Africans subscribe to the free credit score platform to stay informed and become financially savvy. Subscribe here.
Caption: The FIRE movement – built on the premise of “financial independence, retire early” – offers valuable tips for taking control of your financial future, according to JustMoney.